GM's Money Back Refunds Could Blow Up In Their Face

Something doesn't sit right when it comes to GM's new 60-day money back guarantee which started today. We worry that the program could blow up in the company's face.

That's because GM only expects to have 2-3% customer return levels. While they derive this number from experience with similar programs on a smaller scale, it sounds a bit conservative.

Given the current economic environment, a lot of people probably wouldn't mind having some fun with a brand new GM car for 60 days, and then returning it. Some might even abuse the program as a free car rental.

The Atlantic: Let's say you need to rent a car for two weeks. Just go to GM, "buy" a new car and return it two weeks later, no questions asked. Unfortunately, there isn't really any way for GM to guard against this sort of thing. Luckily, I doubt there are enough evil geniuses out there to really engage in this sort of behavior, so this will likely happen only a handful of times.

Given that cars lose substantial amounts of value the second they leave a dealer's lot, each returned car could mean thousands of dollars in losses. In turn, these returns will each require multiple successful sales for GM to just break-even due to the thin margins typically earned on mid-range vehicles.

While GM prudently purchased insurance to protect against high levels of vehicle returns, one imagines that such insurance wasn't cheap and doesn't cover all potential losses.

It also doesn't insure against the potential marketing disaster GM could incur. If people return GM cars in droves, or fail to even try the risk-free offer, the high profile marketing strategy could turn into a high profile flop.

In any case, for the sake of America's 60% GM equity stake, we hope the company proves us wrong. It's just too bad the US taxpayer doesn't get a money-back guarantee on their GM bailout funds as well.